Project Feasibility Study

Project Feasibility Study

The basis for a projects success is a
comprehensive feasibility study and
evaluation.
The feasibility study involves detailed
analysis and evaluation of the project
concept from all the relevant angles.

Project identification
Project must be a wealth creating or a goods
producing or a services generating
enterprise or facility.
Every project that is identified for
implementation must serve an economic
and/or social need of the country in general.

Feasibility Report

A project report has to pass through three

stages of clearance:
a) Pre Feasibility Report (PFR)
b) Techno Economic Feasibility Report
(TEFR)
c) Detailed Project Report (DPR)

Pre-feasibility Report (PFR)

PFR is the document which elicits the
preliminary sanction or the first stage
clearance by Government , legal statutory
bodies and/or the board of Directors of the
said organisation.

The Pre-feasibility of a project can be evaluated from the following

angles:
Market demand for the projects end product and plant
capacity
Materials and inputs
Location and site
Project engineering and investment costs
Plant organisation and overhead costs
Manpower
Implementation schedule
Financial and economic evaluation
Statutory clearance

Pre-Feasibility Cost Estimate

A lot of guesswork goes into feasibility cost
estimate.
Attempts are always made to collect and update
historical figures with additions for
escalation/inflation and local factors, based on
statistics and guesswork.
The consultants often uses capacity cost curve
method to estimate installed cost of plants when
sufficient basic data are not available.

Information to be contained in a PreFeasibility Report

1. Project back ground and description
Project enterprises name and profile,
detailing its experience and performance
in project implementation
Project description
Cost of study/investigation already carried
out

2. Market demand and plant capacity

1.
2.
3.
4.
5.
6.
7.
8.
9.

Demand pattern, size and market

Existing size and capacities of the industries
Who are the market leaders
Its past growth
The projected size of future growth
Its major problems and prospects
The general quality of goods
The product mix
Past/present imports and future trend of volume and prices
The role of the industry in the national economy and policies etc.

 Sales forecast and marketing plan

1. Anticipated competition for the project from
existing and potential local and foreign
producers
2. Local market share for the products and
byproducts
3. Sales program and distribution arrangements
4. Estimated annual sales revenue from products
and by products
5. Estimated annual cost on marketing and sales
promotion

 Production program
1)
2)
3)
4)

Products
By products
Wastes
Estimated annual cost on wastes

 Determination of Plant
Capacity
1) Feasible normal capacity
2) Quantitative relationship between sales,
plant capacity and materials and other
inputs.

3. Materials and Inputs

Raw materials
Processed industrial materials
Bought out components
Auxiliary materials
Factory supplies
Power , water and other utilities including
transport services

4. Location and Site

Alternative locations, description and area
of lands pre selected
Estimated cost of land including
development
Schedule and cost of soil investigation
Factors influencing the selection of each of
the alternatives proposed.

5. Project Engineering and

Investment Costs
Process /technology and equipment cost
Civil engineering works

Process/Technology and Equipment

Cost includes:

Process technologies that can be adopted in

relation to capacity/size
Estimate of costs of local and foreign
technologies
Layout of the proposed
a)
b)
c)
d)

Production equipments
Auxiliary equipment
Service equipment
Major spare parts, wear and tear parts and tools

Estimate of investment cost of equipments.

Civil Engineering Works

Layout of civil engineering works,
arrangement of buildings and description of
construction material to be used
Site preparation and development
Buildings and special civil works
Outdoor works
Estimate of investment cost of civil
engineering works

6. Plant Organisation and Overheads

a) Organisation layout for :
Productions
Sales
Administration
Management
b) Name , Profile & Experience of the consultant appointed
or proposed for appointment
c) Estimated Overhead costs on
Factory
Administration
Financial items (interest, bank charges and depreciation
as per separate schedule)

7. Manpower
Estimated man power requirements
Estimated annual salaries and wages
including allowances, fringe benefits and
long term social & statutory provisions
Labour housing plan and estimated cost

8. Financial and Economic

Evaluation
1.

Total investment cost (with estimates)

Estimated fixed assets
Estimated working capital requirements
Total working costs (Both fixed and variable costs)
2. Project financing arrangements proposed:
Proposed capital structure and finance plan
Loan/ borrowings planned
Interest rate/rates and estimate amounts during
construction

8. Financial and Economic

Evaluationcontd.
3. Operating costs (Attach estimate)
4. Financial evaluation based on the
estimates:
Profitability
Pay back of the interest
Cash flow

9. Status of clearance and approvals from various

Central and state Government Departments:
Soil investigation report
Industrial license / Letter of intent
Automatic permission or specific approval , as the case may
be, for foreign technical collaboration
Automatic permission or specific approval , as the case may
be, for foreign investment
Approval for appointment of foreign consultant
Foreign exchange permission
Import license or automatic permission for import of capital
goods and raw materials
Vetting of the draft prospectus for capital issues by securities
and exchange board of India

9.Status of clearance and approvals from various

Central and state Government Departments:contd.

Clearance from pollution control board

International airport authority's clearance
Clearance from the ministry of railways
Electricity boards clearance
Clearance of chief controller of explosives
Clearance from the chief conservator of forests
Clearance from the state industries department

Project Cost percentage factor

By a rule of thumb, the following are the

percentages of the project cost factors:
Project development and DPR : 2 per cent
Engineering and Design : 13 per cent
Bought out materials and equipment: 55 per
cent
Fabrication and construction: 30 per cent
However, depending upon the project, sector
and complexity, these can vary on either side.

PFR Clearance
As per the practice, PFR for a public sector
project costing up to Rs. 20 crore is
generally cleared by the administrative
Ministry concerned
Above this ceiling limit, the proposal goes
to a committee of public Investment board
(CPIB)

Appraisal Agencies
Project appraisal division of the planning
commission
Dept. of public enterprises
Dept. of economic affairs.
Dept. of environment and forest
Dept. of Planned Finance

Role of Appraisal Agencies

This appraisal agencies evaluate the PFR
from their relevant angles.
Either give individual clearance or record
their objections or get rectification made
before it goes for the first stage clearance by
the Government.

Significance of PFR Clearances

The PFR clearance will authorize
the entrepreneur to incur the preliminary
expenditure on the project
and
Prepare the detailed Techno Economic
Feasibility Report (TEFR) for the more
stringent second stage clearance.

Preliminary Expenditures of this

stage are:

Market survey for product marketing

Initial infrastructure
Site investigation
Preliminaries connected with acquisition of land
Acquisition of process technology
Searching for sources and registration of suppliers
Preparation of TEFR
Consultants fee up to DPR approval

The End